In short, it depends on the type of loan (personal vs. business) and the loan terms. Personal loans are typically unsecured, meaning you do not have to put up any collateral and there is no down payment like home and auto loans require - it’s up to your creditworthiness to secure the loan. Not all internet loans are improper, but all personal loans made on the internet that violate the 12% APR rule are void and unenforceable, as are internet payday loans and many open-end internet loans.

12% Annual Percentage Rate (APR) Rule

Unless statutorily exempt under Virginia Code § 6.2-303, no contract shall be made for the payment of interest on a loan at a rate that exceeds 12% a year. One of the exemptions is for licensed Virginia consumer finance companies. (You can find the other exemptions listed in section B of Virginia code § 6.2-303.) A consumer finance company is defined as “a person engaged in the business of making loans to individuals for personal, family, household, or other nonbusiness purposes.” Virginia Code § 6.2-1500. These companies may charge more than 12% interest but there are no internet lenders licensed as a consumer finance company in Virginia, so any companies offering personal loans online are acting improperly.

Virginia Code § 6.2-1541 further regulates that if a lender makes a non-business loan without a Consumer Finance License and makes a loan for more than 12% APR, the contract is void and the lender is not entitled to collect any principal, interest or charges whatsoever on the loan (and the borrower is entitled to any principal or interest already paid on the loan). In interpreting the Virginia Code, the court in Virginia v. Cash N A Flash determined in 2010, that because the lender, Cash N A Flash, had not obtained a Consumer Finance License and because it charged more than a 12% APR, that a loan it provided was null and void and the court also granted a repayment of the interest and principal back to the borrower.

Internet Payday Loans, Installment Loans, and Open-End Loans

Internet Payday LoansA payday loan, defined under Virginia Code § 6.2-1800, is a small, short-maturity loan based on the security of some income payable to you (not based on income tax refunds). These loans are permissible, but no internet lenders have a payday loan license, so you cannot get a payday loan online. It is a Class 2 misdemeanor to make such a loan without a license.

Installment LoansInstallment loans are loans where the loan repayment is over a set period of time (weekly or monthly payments, for example). Internet installment loans don’t meet any of the statutory exceptions listed in subsection B of Virginia code § 6.2-303, so they are null and void if they charge more than 12% APR.

Open-End LoansOpen-end loans are those that do not have a set date to finish paying off the loan (similar to a credit card: as you pay it back, you can take out more money on the “credit line”). Under Virginia Code § 6.2-312, you have at least 25 days to repay the loan in full without incurring any charges or fees. There are some internet lenders pretending to offer open-end loans but they either do not meet the definition of an open-end loan under Virginia Code § 6.2-300, which is defined as “consumer credit extended by a creditor under a plan in which: (i) the creditor reasonably contemplates repeated transactions; (ii) the creditor may impose a finance charge from time to time on an outstanding unpaid balance; and (iii) the amount of credit that may be extended to the consumer during the term of the plan, up to any limit set by the creditor, is generally made available to the extent that any outstanding balance is repaid,” or they do not have the required 25-day grace period required by Virginia Code § 6.2-312. Finally, as noted above, if the interest charged exceeds 12% APR, the loan is null and void.

Different Laws in Different States?

Sometimes, a loan contract will contain a clause that applies a different state’s law to the loan. Even if you have agreed to this provision in the contract, if the lender does not have a Virginia license to make consumer loans with an interest rate greater than 12% APR, then the loan is void and the contract cannot be enforced.

Internet loans are easily available and well-marketed but there are only a few safeguards in place in Virginia to protect consumers. All loans made to Virginia residents over the internet for more than 12% APR, are unenforceable loans. All internet payday loans are illegal. And any open-end loan (that is not statutorily-exempt), must provide borrowers a 25-day grace period without any fees or charges. Make sure you are aware of these protections when entering into an internet loan. If you think you entered into an invalid loan and need assistance, please contact us.

Buyer’s remorse, or a right of rescission, is a way of voiding a contract. It’s when you want things to go back to the status before a purchase. Unfortunately, unless the vendor or retailer specifically offers a return policy or a sale’s contract allows you to terminate the contract, there are only a limited number of laws, like the federal and Virginia law, that provide you with this rescission or canceling right.

I. Federal Law

Under federal law, The Federal Trade Commission (FTC) has established some safeguards to protect consumers from the consequences of hasty decisions. In particular situations, there is a three-day cooling-off period during which a consumer can cancel a contract. For instance, consumers have the right to rescind contracts signed in their home when they are solicited by door-to-door salespeople. Additionally, consumers who purchase items at a temporary business location rented by a merchant on a short terms basis-- like at kiosks in a mall or at trade shows in convention centers -- have the same three-day “cooling-off” period (as do home-sale parties, and special sales held at hotels or restaurants).

But, consumers do not have a three day right to cancel under federal law when buying items purchased in a retail establishment, such as a store or auto dealership or when buying things like:

Good that total less than $25

Real estate

Insurance

Securities

Farm equipment

Motor vehicle

Business or education goods (i.e., not personal or household goods)

When the purchase is entirely by mail, online, telephone, or involves arts and crafts at a fair-type venue

If you do qualify for the three-day cooling-off period, then you need to give cancellation notice to the seller by mail, or hand delivery within three business days of the sale, with the following information:

Your name, address, and contact information;

Identifying information for the goods or services you're wishing to cancel (e.g., order number, account number, etc.); and

An unequivocal statement that you are canceling the contract.

II. Virginia Law

If you live in Virginia, there are a several statutes that allow you to cancel a contract or agreement:

If you join a travel club, which is a group of business owners in the travel industry that join together and put together wholesale travel packages for an upfront cost, you may cancel the membership within seven days of purchase.

You may cancel by delivery, telegram, or mail with proper address and prepaid postage.

If you join a camping membership (a private campground open only to members who typically pay a one-time membership fee and annual dues for the right to use the campground), you may cancel the membership within seven days from the date of purchase.

You may cancel by: mailing notice of your intent to cancel by certified US Mail to the membership camping operator at the address shown in the membership camping contract.

A health club membership may be cancelled within three days after purchase.

If a health club closes or relocates its facilities, a buyer may cancel the contract if the club fails to provide comparable alternate facilities within five driving miles of the location designated in the health club contract.

A contract may be cancelled if you are physically unable to use a substantial portion of the services for 30 or more consecutive days.

You may cancel your membership by:

notifying the health club of cancellation in writing, by certified mail return receipt requested, or personal delivery to the address of the health club as specified in the health club contract.

You (the borrower), have the right to cancel a loan at any time before the close of business on the next business day following the date that the loan was issued.

You may cancel by returning the cash or other good funds instrument (i.e., a certified check, cashier's check, money order or, if the licensee is equipped to handle such payments, payment by credit card) of the amount advanced, back to the lender.

You (the borrower), have the right to cancel the loan at any time before the close of business on the next business day following the day the loan agreement is executed.

You may cancel by by returning the original loan proceeds check to or paying to the licensee, in the form of cash or other good funds instrument (i.e., a certified check, cashier's check, money order or, if the licensee is equipped to handle and willing to accept such payments, payment by credit card, prepaid card, or debit card), the loan proceeds.

You may cancel a contract for property (that is not a cooperative or condominium):

within three days after the signing of the contract, if the purchaser is notified on or before the contract was signed, that the association disclosure packet will not be available;

within three days after receiving the association disclosure packet (or notice that the disclosure packet will not be available), you may cancel by hand delivery, electronic means, or by mail with a receipt; or

within six days after the postmark date if the association disclosure packet is sent to the purchaser (or notice that the association disclosure packet will not be available), you may cancel by United States mail.

The purchaser may also cancel the contract at any time prior to settlement if the purchaser has not been notified that the association disclosure packet will not be available and the association disclosure packet is not delivered to the purchaser.

You may cancel the contract by:

Hand delivery;

United States mail, postage prepaid, provided the sender retains sufficient proof of mailing, which may be either a United States postal certificate of mailing or a certificate of service prepared by the sender confirming such mailing;

Electronic means provided the sender retains sufficient proof of the electronic delivery, which may be an electronic receipt of delivery, a confirmation that the notice was sent by facsimile, or a certificate of service prepared by the sender confirming the electronic delivery; or

Overnight delivery using a commercial service or the United States Postal Service

within three days after signing the contract if you are notified on or before the contract was signed that the resale certificate will not be available; or

within three days after receiving the resale certificate (or notice that the resale certificate will not be available) delivered by hand, electronic means, or mail, and a receipt is obtained; or

within six days after the postmark date of the resale certificate (or notice that the resale certificate will not be available) is sent to you by U.S. mail.

You may also cancel the contract at any time prior to settlement if you have not been notified that the resale certificate will not be available and the resale certificate is not delivered to you.

A resale certificate is a a set of documents you receive within 7 – 10 days after making an offer on a unit in a condominium building. (It includes the Homeowners Association budget, the Covenants, Conditions & Restrictions (CC&Rs) for the building, and a copy of the minutes of the association's last meeting.)

Cancellation may be made by:

Hand delivery;

United States mail, postage prepaid, provided the sender retains sufficient proof of mailing, which may be either a United States postal certificate of mailing or a certificate of service prepared by the sender confirming such mailing;

Electronic means provided the sender retains sufficient proof of the electronic delivery, which may be an electronic receipt of delivery, a confirmation that the notice was sent by facsimile, or a certificate of service prepared by the sender confirming the electronic delivery; or

hand-delivering the notice to the developer at its principal office or at the project, or

mailing the notice by certified United States mail, return receipt requested, to the developer or its agent designated in the contract. Notice sent by certified mail shall be effective on the date postmarked.

Virginia’s Lemon Law: ​In addition, Virginia has the Virginia Motor Vehicle Warranty Enforcement Act (Virginia’s “Lemon Law”). A car is classified as a “lemon” if it has been repaired three times or more since its purchase or if it has been repaired once for a serious safety defect. For more information, please see our blog post here. The Lemon Law requires that the dealer accept the vehicle for a refund or exchange or the purchaser may sue the dealer for the sales price and any other incurred damages (e.g., cost of repairs and attorney fees).

III. ConclusionAlthough federal law has a “three-day rule,” or a “right of rescission” to cancel a contract, the law only applies in limited situations. Although Virginia laws expand the applicability of when you can cancel a contract, these laws also apply in only few, very specific situations (i.e., property purchases, health club memberships, and certain loans). In general, there aren’t many instances when you can return a purchase without a sales contract allowing you to make the return, so buyer beware!

Legal Disclaimer

The blog postings and information on this site are provided for informational purposes only and is only meant to provide a general overview or description of the law and may not reflect current legal developments, verdicts or settlements. It is not, nor is it intended to be, specific legal advice, which requires an analysis based on the specific factors unique to each case. Therefore, do not act or refrain from acting on the basis of any content included on this site without seeking a confidential consultation from a knowledgeable attorney.

By accessing this site you acknowledge that this information is not provided in the course of an attorney-client relationship, is not intended to constitute legal advice, and Steven Krieger Law, PLLC expressly disclaims all liability in respect to actions taken or not taken based on any of the contents of this website.